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We had intended to follow-up last weeks’ ROCE Deep Dive post (here) with examples of how to apply it to macro forecasting as well as sub-sector and company analysis. However, a surprise LNG permit “pause” from the Biden Administration followed a few days later by Saudi’s announcement it would “pause” its planned oil capacity expansion has led to a change in publishing plans!

We wrote a seven-part tweet/post on Twitter-X over the weekend (here) that has now garnered a mind-boggling 120,000 views, well above our typical 1,000-4,000 views per tweet/post. Key points: (1) there is no such thing as an “Industry” view on the “pause,” it essentially depends on whether a company, industry, or country is long or short natural gas; (2) the potential impact on Europe has been both over-analyzed and overstated; (3) the implications for developing Asia have been under-appreciated; (4) competitor countries are undoubtedly rejoicing over the news; (5) big versus small government is a basic viewpoint difference in how to address energy & environmental policy; (6) climate implications are more complex than the simple debate of LNG is higher-carbon than renewables versus lower carbon than coal.

We address the Saudi capacity expansion pause from the perspective of the recent Saudi oil policy that has focused primarily on the front-end of the curve. Is this a shift to focusing on long-dated oil? As a reminder, both the Biden LNG permit and Saudi capacity expansion pauses are consistent with our “Super Vol” rather than “super-cycle” commodity macro framework. Policy rhetoric and actions, frankly, can be as meaningful as underlying supply/demand, especially over the near-to-medium term.

Finally, we observe signs that we are past “peak Tesla,” especially when considered alongside clear evidence of electric vehicle (EV)-or-bust fatigue among car buyers and many traditional auto manufactures. China’s EV ramp continues, more or less unabated, and we believe is highly motivated by a desire to limit growth in oil imports. We do not believe there is a singular EV adoption “S-curve” for all regions. China will be different than the USA, which will be different than India, the rest of Southeast Asia, the Middle East, Africa, and Latin America. We continue to believe there is not a decade, let alone year, when we KNOW oil demand will peak, even as we expect continued growth in many new energy technologies including EVs.

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⚖️Disclaimer

I certify that these are my personal, strongly held views at the time of this post. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments. Some of my comments are made in jest for entertainment purposes; I sincerely mean no offense to anyone that takes issue.

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* Intro & Outro music: Wolf Hoffman: Concerto for 2 Cellos in G Minor, Rv 531: I. Allegro Moderato.

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